Friday, 25 October 2013

It has been hard to miss the coverage of Grangemouth petro-chemical works in the past few days. From a parochial local matter, the affair has been escalated into the national headlines as an example of union intransigence costing workers jobs. The origins of the dispute lie with union perception and reaction to the victimisation of a member, an affair going back to the Labour Party and the Falkirk candidate selection conflict.
Ineos alone chose to up the ante, threatening closure unless the entire workforce agreed to drastic cuts in terms and conditions (including the closure of the final salary pension scheme), a no strike agreement and as a last resort attempting to cut the union out by going directly to the workforce. This can best be described as blackmail, at worst as extortion.

Coercion on this scale by a multinational company however is condoned by press and governments. Both Salmond and Cameron have been left on the sidelines making noise not decisions in a deregulated market economy. It is easier to blame both sides and extort them to negotiate rather than examine the facts of the matter beyond the surface.

Over the past decade or more, Ineos has bought up subsidiaries of global oil and chemical companies such as BP, ICI and BASF, creating a global behemoth with annual sales of $43bn and 51 manufacturing facilities in 11 countries. One of those deals was in the 2005 deal to buy Innovene, BP’s chemicals operation, for $9bn. Grangemouth’s refinery and petrochemicals plant were part of that deal.

The company has been built up by Jim Ratcliffe, a private equity buccaneer whose personal wealth has been estimated by the Sunday times Rich List at £1 billion. Shortly after the initial takeover, the Grangemouth plant was hit by a strike to defend the workers final salary pension scheme. On the occasion, the union won but according to those who know him, was take as a personal insult by the new owner.

Ratcliffe is quoted in the Financial Times as saying "the business environment in Britain is bad and getting worse. Energy is expensive, logistics are costly, skills are "middle to poor" and unions resist change. Pension costs, meanwhile, are "outrageous". As an example of this, Ratcliffe notes "The UK is one of the few places in the world that has final salary pensions," leading the Financial Times to speculate that the move to close the plant had been in the works for months, and possibly years.

In the recent past Ineos, in company with many other private equity entities was reeling from the crash in 2008. Many of its activities were debt leveraged and its financial performance breached a loan covenant. The banks pounced, increasing interest rates and fees. Ineos responded by cutting investment, freezing pay and cutting costs. As a result it moved its tax base to Switzerland. To quote the Guardian at that time,

"The company said that it had received the consent of its lenders to move its headquarters and following an internal review the decision had been finalized. Its lenders include Royal Bank of Scotland and Lloyds Banking Group, both bailed out with billions of taxpayers' money."

Whatever the legality of the move, unions at the time were angry that Ineos has been handed tens of millions of pounds in tax relief on its debt mountain and cut its tax bill simply by moving a small part of its operations overseas. But that is the way that multi-nationals operate, particularly private equity. Ineos’ actions as outlined here is only one example and its behaviour is a matter of public record. Not that anyone following the news on the BBC would be aware of it. (However if UNISONActive can do it using a laptop and Google one wonders why the BBC has the staff complement that it does, but either can’t or won’t).

Private equity entities are much beloved of investors (including pension funds) for the high returns that they guarantee. But as even the Bank of England has warned, there were also potential downsides to private equity, including the risk that the pressure for short-term returns would starve companies of long-term investment. Ineos claims that the Grangemouth plant is losing money but Unite investigations have cast doubt on this. Neither the union as an entity or the workforce has any rights to examine the books in detail.

The Ineos affair raises numerous questions about the direction of the Scottish and British economy. Are the interests of shareholders and the drive for short term profits always paramount? Why is the workforce so powerless in these situations? Should a private company dictate to national government on industrial policy and leave the state to pick up the bill for the devastating unemployment that they cause?

The answers lie in a rethinking of industrial, legal and economic policy, placing rogue companies in a framework that makes them answerable for the decisions that they take and responsible financially through the taxation system to the country in which they operate. Otherwise the deindustrialisation of UK PLC will continue apace, till the only employment opportunities for those not in financial sector or the professions will be selling horsemeat burgers to one another. It does not lie in the continued untrammelled unregulated free market model that we currently live under.

September’s Labour Research, for example, reminded readers that it is thirty five years since the Callaghan Government set out its plans for employee representation on company boards. Frances O’Grady has recently renewed the call for industrial democracy, in the form of "greater worker and union involvement in corporate decision making". Such a model is not incompatible with 21st century capitalism, being common throughout the EU. It is not a panacea but levels the playing field with regard to insider knowledge. It would at least be a step forward.